Sabre Corporation

Good morning and welcome to the SABR's fourth quarter and full year 2023 earnings conference call. My name is Livia and I'll be your operator. As a reminder, please note today's call is being recorded. I will now turn the call over to the Senior Vice President of Investor Relations at Treasurer, Brian Evans. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to SABR's fourth quarter and full year 2023 earnings call. This morning, we issued an earnings press release, which is available on our website at investors.saber.com. A slide presentation which accompanies today's prepared remarks is also available during this call on the Saber Investor Relations webpage. A replay of today's call will be available on our website later this morning. We advise you that our comments contain forward-looking statements that represent our beliefs or expectations about future events, including the effects of cost efficiencies and growth strategies distribution volumes, benefits from our technology transformation, commercial and strategic arrangements, our financial guidance and targets, expected revenue, adjusted EBITDA, free cash flow, interest, capital expenditures, margins and liquidity, among others. All forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. More information on these risks and uncertainties is contained in our earnings release issued this morning and our SEC filings, including our Form 10-K for the year ended December 31st, 2023. Throughout today's call, we will also be presenting certain non-GAAP financial measures. References during today's call to adjusted EBITDA, adjusted EBITDA margin, adjusted EPS, and free cash flow have been adjusted to exclude certain items. The most directly comparable gap measures and reconciliations for non-gap measures are available in the earnings release and on other documents posted on our website at investors.saber.com. Participating with me are Kurt Eckert, President and CEO, Mike Randolphie, Chief Financial Officer. Scott Wilson, Executive Vice President and President of Hospitality Solutions, will be available for Q&A after the prepared remarks. With that, I'll turn the call over to Kurt.

Thanks, Brian. Good morning, everyone, and thank you for joining us today. I'm pleased this morning to discuss the many accomplishments of the Sabre team. Earlier today, we reported our fourth quarter and full year 2023 results that included strong revenue growth, significant margin expansion, and substantial increases in both adjusted EBITDA and operating cash flow, which allowed us to achieve our free cash flow objective for the year. In addition to reviewing our financial performance, I will also spend time highlighting the recent achievements in our technology transformation, our many commercial wins, and our product innovations that help position our portfolio for the future of travel while helping to deliver sustainable growth. Now let me walk through the agenda for today's call. On slide four, you can see an overview of the topics that Mike and I will cover. First, I will review our business highlights and accomplishments from 2023. Next, I'll provide a brief overview of how the industry landscape is evolving. Finally, before handing it over to Mike, I'll close with a review of our growth strategies and how we believe they position Sabre for success. Mike will then take you through the financial results for the fourth quarter and full year 2023, and provide an update to our 2024 guidance and 2025 targets. Now let's turn to slide five. 2023 was a year of strong execution at Sabre. Our team members around the world delivered the commercial, operational, and product development success that drove the strong financial results depicted on this slide. We generated 15% top line growth in 2023, improved our efficiency, and effectively contained costs. These achievements combined to drive significant margin expansion and growth in adjusted EBITDA with a $272 million year-on-year improvement. Importantly, our team achieved positive free cash flow excluding restructuring for full year 2023 which was one of our primary financial priorities. These strong financial results supported our innovation and product development initiatives that are essential to achieving Saver's long-term strategic priorities. Turning to slide six. As a reminder, we have four key strategic priorities that drive our long-term direction and form the foundation of our resource allocation and decision making. As I refer to each priority, I will briefly touch on some of the 2023 accomplishments listed on this slide. First, generating positive free cash flow and de-levering the balance sheet remain important financial objectives. As mentioned, the significant improvement in our adjusted EBITDA in 2023, in addition to our working capital initiatives, helped deliver positive free cash flow for the year after excluding restructuring. On our second priority, achieving sustainable long-term growth, I am pleased to announce that we continue to grow our share of GDS industry bookings, which I will touch on in a moment. We are encouraged by the momentum we are seeing with our carrier and agency customers and believe we will achieve further GDS market share growth ahead. Turning to hospitality solutions, our team delivered strong financial results in 2023 that exceeded our initial forecasts for growth and profitability. We expect this momentum to continue in 2024, including from our Hyatt enterprise implementation and a number of additional business wins. On our third strategic priority, which is to drive innovation and enhance our value proposition, we've reached an important next step in our strategic partnership with Google. As I mentioned last quarter, Sabre engineering teams are now developing products and solutions that harness Google's cutting-edge AI capabilities, which translated into several successful product launches earlier in 2023. For example, UpgradeIQ, which optimizes airlines' premium cabin inventory. We believe this important partnership is essential to providing our customers with intelligent retailing solutions and modern distribution technology. As another area of excellence in execution by our team, our technology transformation to the cloud continues on schedule, and we expect to achieve our stated goals by the end of 2024. In addition to the cost and operating efficiency gains we are already seeing, our migration to the cloud provides a more powerful launchpad on which to create, develop, and distribute future product innovations. Before I move on, I want to take a moment to say thank you to our team members around the world for delivering these results, for consistently providing superior service to our customers, and for providing the exciting new technology that makes me so proud to be a member of the Sabre team. It is this collective commitment to continuous innovation and service to our customers that personifies our culture. Turning to slide seven. As you can see, Travel Solutions delivered impressive financial results in 2023 across many key metrics. Strong GDS bookings growth and continued improvement in the average fee from a richer booking mix helped drive a year-on-year double digit increase in Travel Solutions revenue and gross income. Sabre achieved steady GDS industry share growth through 2023 as well as 16% overall volume growth in GDS bookings, and 27% growth in distribution lodging, ground, and sea bookings, highlighting our growth opportunity in hotel distribution. In IT solutions, our passengers boarded increased by 8% versus 2022. Turning to slide eight. As we highlighted throughout the past year, Sabre is growing its share of GDS industry bookings. As you can see, our share in Q4 23 again expanded on a year-on-year basis for the fourth consecutive quarter. In addition, we achieved GDS industry share of 33.8% for full year 2023, a 1.2 percentage point improvement versus 2022. In the fourth quarter, our share of the GDS industry bookings was up year-on-year, but declined slightly sequentially from the third quarter. This is due largely to the temporary slowdown in corporate travel and natural seasonal decline in corporate bookings during the quarter, as corporate travel comprises a larger proportion of our client footprint and bookings relative to the GDS industry. Importantly, as Mike will explain, we have seen a rebound in corporate bookings and resultant strong GDS market share performance trends as we start 2024. We are pleased with these results and believe our compelling distribution offering as well as signed but not yet implemented business and our robust pipeline of distribution deals position us well for continued GDS industry market share expansion. Turning to slide nine. Our hospitality solutions team delivered excellent results in 2023. Total revenue was up 19% versus 2022 on a significant jump in both CRS transactions and rate per transaction. Adjusted EBITDA reported for the year was well above our initial expectation for rate given results and represented more than a $40 million improvement versus 2022. Additionally, the SAS operating model inherent in our hospitality solutions business generates high recurring revenue. Consistent double digit revenue growth 79% recurring revenue, and a strong margin expansion trend provide markers in the value trajectory of this business. Please turn to slide 10. Our technology transformation remains on course to achieve our cost savings targets and technology goals by year end 2024. As you can see, the efficiency with which Sabre conducts its business today is substantially improved. In the fourth quarter, our unit cost of compute declined by nearly 20% from the year-ago period and was down approximately 50% versus 2019. In addition, our focus on investing in offer and order capabilities is a pivotal aspect of our future product portfolio. We are actively developing our offer and order platform within the Google Cloud environment, and we recently completed a successful pilot program with a major airline partner. The successful program validated our ability to efficiently integrate shopping and ordering functionalities within the platform. Overall, we believe our technology transformation and commitment to innovation will continue to help us deliver modern technology solutions and execute on our strategic priorities. Please turn to slide 11. In addition to the significant customer announcements we highlighted earlier in 2023, I am pleased to review a number of more recent business wins, but Highlight Sabre is consistently being selected as a partner of choice by leading global travel suppliers seeking modern distribution and retailing technology. We continue to see momentum in hospitality solutions. Our implementation work with Hyatt to provide them with our Synexis central reservation system technology continues, and we are on track for initial go-live in the first half of 2024. We also recently announced a new agreement with Frazier's Hospitality, a luxury management company in Asia Pacific, which selected our Retail Studio software to provide its guests with greater personalization. Earlier this week, we announced a key partnership with Riyadh Air, the new national airline of the Kingdom of Saudi Arabia, to utilize our network planning and optimization solutions, where the airline will be using our advanced data analytic and intelligent decision-making capabilities to improve data efficiency and help optimize flight times for incremental revenue gains. In distribution, we continue to expand our relationship with Air India. And as of January 1st, 2024, travel agencies in India now have access to that carrier's expansive domestic content through Sabre. We were also pleased to sign a new multi-year agreement with International Airlines Group, or IAG, that will allow Sabre-connected buyers and agencies to sell EDIFACT and NDC content. Furthermore, we are accelerating our investment to offer more robust NDC functionality. Our recent agreements for NDC content with Hawaiian, Malaysian Airlines, and LOT Polish Airlines highlight that customers seeking modern distribution technologies consistently choose Sabre to meet their evolving needs. We also had a number of meaningful agency wins, including one of the leading providers of online travel, Priceline. In summary, our team achieved a number of commercial wins during the fourth quarter, and we are confident that our modern technology solutions and pipeline of business will help us execute on our strategic priorities. Now on to slide 12. I will take a few moments now to look forward and discuss the latest trends in global air travel how the travel marketplace is evolving, and how we believe we are positioned for success in this environment. This chart depicts the long-run upward forecasted trend in air travel demand and the expected resilience of global air passenger growth. As you can see in the chart, industry forecasts suggest healthy growth in passenger traffic will continue and approach nearly 7% per year over the next five years. Looking forward, we see a number of reasons to be optimistic that broader industry volume growth will continue, such as moderating airfares, solid capacity growth driven by robust international demand, and less acute industry supply constraints. Sabre and the GDS industry experienced significant growth in recent years as global travel recovered. However, overall air travel rebounded at a faster pace over this period. We believe the GDS industry has recovered at a slower rate for several reasons. First, the GDS industry has historically been comprised of about 50% corporate and 50% leisure, generally over-indexing to longer-haul international segments, which is more complex in nature. As discussed in the marketplace, global corporate travel has recovered to about 75% on a unit basis of its pre-COVID levels. Note that with air and hotel yields much higher in 2023 than pre-COVID, the dollar recovery often cited by suppliers is higher than this unit percentage. And as I mentioned earlier, a greater proportion of our business is corporate or TMC business as compared to our competitors. While there may be a structural element to this, in the corporate travel today, is smaller than it was historically, we believe this is an opportunity for Sabre as we are well positioned to grow volumes and share as corporate travel grows prospectively. Second, longer haul international capacity has generally returned more slowly than shorter haul and domestic capacity. Given that shorter haul and domestic capacity generally accrues more to Airline Direct than to the GDS channel, This is slow GDS industry recovery. This has had the effect of reducing the proportion of overall bookings going through the GDS channel as compared to Airline Direct. We believe that this is not a long-term issue for the industry. Third, NDC volumes today comprise only about 1% of total volumes for travel management companies and brick and mortar agencies. and we believe the NDC volumes of these buyers are flowing almost entirely through Sabre and other GDSs. However, while not a new construct, we have seen over the COVID period an increase in airline direct connect volumes with online travel agents, some of which may be characterized as NDC. While a generally lower margin business, OTA volumes remain a very meaningful contributor to the GDS industry And this OT dynamic is a negative volume impact to GDSs. Looking ahead, as OTAs are now seeking our help with automation, shopping, and caching solutions to deal with their content, retailing, and operational needs, there may be opportunity to recapture volume as well as provide additional services. And last, low-cost carriers have traditionally outgrown full-service carriers and we and other GDSs have been a smaller part of the LCC distribution footprint, given their general short haul and leisure focus. Prospectively, we believe this is a largely untapped opportunity for Sabre. In addition, there have been a number of recent positive comments from large airlines and industry experts around corporate and international travel demand growth in 2024, which should be supportive of the industry volume scenarios that Mike will discuss shortly. On to slide 13. Looking at the future of travel and the evolving marketplace, our growth strategies are designed to deliver modern distribution and retailing technology. Our multi-source content platform strategy is designed to efficiently increase agency and buyer access to relevant air content from a wide array of airline products, including EDIFACT, NDC, and low-cost carrier content through all channels and points of sale and with leading shopping, retailing, and automation capabilities. Agencies and other buyers consistently tell us that we have one of the leading NDC solutions in the world to support their businesses. Next, our distribution expansion strategy consists of targeted resource and product investments to help drive growth in specific geographies and marketplace segments, including countries and segments in which we are under indexed today. We expect to realize continued strong share growth in the months and years ahead as existing and new agencies and other buyers see us as their preferred technology partner. In hotel distribution, we believe Sabre can become the premier business-to-business intermediary lodging platform globally by investing to enhance our current product suite, tapping more deeply into our existing distribution customer base, and increasing the attachment of hotel bookings to our GDS market offering. In payments, we are excited about the long-term opportunity and believe our Confirma platform can become a leader in virtual cards. Market penetration of virtual cards for commercial payments remains in the early stages, but adoption is accelerating. Overall, our payment solutions experienced 25% plus growth in spend volume in 2023 versus 22 as businesses increasingly seek more efficient payment methods. With $14 billion in spend volume already flowing through the payment gateway, we see Confirma as an important contributor to the future of our business. Sabre's core capabilities in airline IT address the changing needs of global carriers that are demanding greater personalization and flexible technologies. We plan to grow our airline IT business with intelligent retailing solutions built on a modular platform with offer order technology at the core. These products and solutions are already gaining traction with customers. In our hospitality solutions business, we have a strong revenue pipeline of new customer wins in our CRS and our retail studio suite of solutions. This offering brings the power of personalization to our hotelier customers to significantly expand their revenue opportunities beyond the standard booking process, improving the overall guest experience. In summary, we are committed to focused investments in these strategies to deliver winning modern retailing and distribution technologies and deliver sustainable growth. I again commend our team members globally for their hard work, and I am confident that we have the right strategies in place to continue delivering on our priorities. I will now hand the call over to Mike to walk you through our financial performance and forward outlook.